SUDARSHAN ZUMBARLAL BAFNA,,AHMEDNAGAR vs. PR. COMMISSIONER OF INCOME TAX -1,, PUNE

The crux of the grievance of the assessee in this appeal as per the grounds of appeal on record is the assumption of revisionary jurisdiction u/s.263 of the Act by the Ld. Pr. Commissioner of Income Tax.

A show cause notice was issued by the Ld. Pr. Commissioner of Income Tax u/s.263 of the Act dated 15.07.2016 which relates to the claim of exemption u/s.54F of the Act by the assessee and the observations contained therein that the exemption u/s.54F of the Act is with regard to the cost of only new assets and however, whether that would also include the deposits made in the Capital Gain Scheme and the cost of interior work done by the assessee therein. That according to the Ld. Pr. Commissioner of Income Tax, on this, neither any enquery was done by the Assessing Officer nor there was any application of mind by the Assessing Officer and therefore, order passed by the Assessing Officer according to the Ld. Pr. Commissioner of Income Tax was erroneous so far as it is prejudicial to the interest of the revenue.

At the time of hearing, the Ld. AR of the assessee submitted that at Page 88 of the Paper book filed before us, there is a detailed questionnaire issued by the Assessing Officer along with notice u/s.142(1) of the Act wherein Point Nos. 6 and 7 states as follows:

The Ld. AR vehemently argued that the issue raised in the show cause notice u/s.263 of the Act were all enquired into specifically by the Assessing Officer and detailed reply have been filed before him by the assessee. Therefore, the order passed by the Assessing Officer is not erroneous and also not prejudicial to the interest of the revenue. For this proposition, the Ld. AR has placed reliance on the following decisions:

Per contra, the Ld. DR submitted that exemption u/s.54F of the Act is only with regard to cost of acquisition of new assets and it does not cover any cost of interior decoration.

In the counter argument submitted by the Ld. AR on facts, he invited our attention to Pages 46, 47 and 49 of the paper book wherein it is evident that certain works were to be carried out by the assessee himself which are as follows:

We have perused the case records and heard the rival contentions. We have also considered the judicial pronouncements placed before us. In this case, revisionary jurisdiction u/s.263 of the Act has been assumed by the Ld. Pr. Commissioner of Income Tax on the issue that regarding claim of deduction u/s.54F of the Act by the assessee, necessary enquiry were not conducted and whether cost of interior decoration was allowable or not, these were not specifically enquired into by the Assessing Officer while framing assessment and therefore, the Ld. Pr. Commissioner of Income Tax held the order of the Assessing Officer is erroneous so as to be prejudicial to the interest of the revenue.

Per contra, the Ld. AR demonstrated before us that the Assessing Officer had specifically asked for details regarding claim of exemption u/s.54F of the Act along with necessary evidences from the assessee and in respect there to, the assessee has furnished specific reply to all enquiries raised by the Assessing Officer. More specifically on the issue of exemption u/s.54F of the Act, the assessee has also provided copies of sale deed and purchase deed before the Department. These facts also come out from assessment order at Paras 5 and its sub Paras onwards. Thus, it is evident that the Assessing Officer conducted necessary enquiry and has raised specific questions

In the case of CIT Vs. Fine Jewellery (India) Ltd. (supra.), the Hon‟ble Bombay High Court has held and observed that “the Tribunal recorded fact that specific queries were made during assessment proceedings with regard to details of expenditure claimed under head “miscellaneous expenses” aggregating to Rs.2.94 crores. The assessee has responded to same and on consideration of response of assessee, AO held that amount of Rs.17.98 lakhs incurred on account of repairs and maintenance out of Rs.2.94 crores was capital expenditure. This itself would be indication of application of mind by AO while passing impugned order. The Hon’ble High Court further considered the decision in the case of Idea Cellular Ltd. Vs. Deputy Commissioner of Income Tax & Ors. (2008) 301 ITR 407 ( Bom.) and held that if query is raised during assessment proceedings and responded to by the assessee, mere fact that it is not dealt with in AO would not lead to a conclusion that no mind had been applied to it.”

That further, the Hon‟ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. (supra.) has held that “if there is an enquiry, even inadequate, that would not by itself give occasion to the CIT to pass order under s.263, merely because he has a different opinion in the matter. In this case, the Hon’ble Delhi High Court made distinction between “lack of enquiry” and “inadequate enquiry”. In the issue on which order u/s.263 of the Act has passed, has been enquired by the AO and even if the said enquiry is

Reverting to the facts of the present case, as demonstrated before us by the Ld. AR, the issue on which 263 jurisdiction was assumed by the Ld. Pr. Commissioner of Income Tax, to those issues, the Assessing Officer has enquired into and replies were also filed in detail by the assessee in response thereto. In such scenario, the Ld. Pr. Commissioner of Income Tax could not have assumed the jurisdiction u/s.263 of the Act. That further, regarding contentions of the Ld. DR that section 54F pertains to the cost of acquisition of the new assets and it does not cover the cost of interior decoration, in this regard, as evident from the agreement entered into between the promoter and the assessee therein certain essential items as mentioned herein above in the order were to be carried out by the assessee himself. These expenses are necessary to suitably live in that particular flat. These expenses are necessary for habitation in that particular flat. They do not pertain to any decoration item rather they are all essential to make a flat fit for living.

In the case of Rahana Siraj Vs. Commissioner of Income Tax (supra.), the Hon‟ble Karnataka High Court has observed that “question arose for consideration was if ITAT was right in holding that assessee was not entitled to make deduction in respect of additions/alterations made to property after purchase in order to have normal living in computing deduction u/s.54F, when no such restriction has been provided u/s.54F, property purchased by the assessee was habitable but had lacked certain amenities so assessee spent nearly about Rs.18 Lakhs towards repairs, Section 54F provide that if cost of new asset had to be taken into consideration while determining capital

In the case of Saleem Fazebhoy Vs. Deputy Commissioner of Income Tax (supra.), the Mumbai Bench of the Tribunal has held that “the provisions of section 54F are incentive provisions intended to augment the investment in residential houses. It is the settled legal position that incentive provisions should be construed liberally in such a manner that object of the statute is fulfilled rather than the manner in which may frustrate the object. Investment in residential house would not only include the cost of purchase of the house but also the cost incurred in making the house habitable. An inhabitable premise cannot be equated with a residential house. If one person cannot live in a premises, then such premises cannot be considered as a residential house.”

In view of the aforesaid examination of the facts and legal parameters, we are of the considered view that the revisionary order passed by the Ld. Pr.